(B)(3) Adequacy of Consideration - accord and satisfaction, illusory promises, voidable and unenforceable promises, requirements and output contract & settlement of a legal claim Flashcards
accord and satisfaction - accord
under an accord agreement, a party to a contract agrees to accept a performance from the other party that differs from the performance that was promised in the existing contract, in satisfaction of the other party’s existing duty
accord and satisfaction - dispute of monetary claim
when a party agrees to accept a lesser amount in full satisfaction of its monetary claim, there must be consideration or a consideration substitute for the party’s promise to accept the lesser amount
accord and satisfaction - dispute of monetary claim example
i.e., consideration can exist if the other party honestly disputes the claim or agrees to forego and asserted defense (settlement of a legal claim), or if the payment is of a different type than called for under the original contract
accord and satisfaction - satisfaction
a “satisfaction” is a performance of the accord agreement; it will discharge both the original contract and the accord contract
accord and satisfaction - when does satisfaction occur?
there is no satisfaction until performance
accord and satisfaction - when is original contract discharged due to satisfaction?
original contract is not discharged until satisfaction is complete
accord and satisfaction - accord is breached by the party who has promised a different performance
if an accord is breached by the party who has promise a different performance, the other party can sue either on the original contract OR under the accord agreement
accord vs substituted contract
a substituted contract is a second contract that is itself accepted by a party in satisfaction of the other party’s existing obligation, immediately discharging the original obligation and limiting the remedy for breach to the terms of the second contract
how do you determined if an agreement is an accord or a substituted contract?
whether an agreement is an accord or a substituted contract turns on how formal the agreement is; the less formal, the more likely it is an accord
accord and satisfaction - use of a negotiable instrument
if a claim is unliquidated or otherwise subject to dispute, it can be discharged if:
(i) the person against whom the claim is asserted in good faith tenders a negotiable instrument (i.e., a check) that is accompanied by a conspicuous statement indicating that the instrument was tendered as full satisfaction of the claim (i.e., “payment in full”), and
(ii) the claimant obtains payment of the instrument
accord and satisfaction - use of a negotiable instrument: addition of restriction by claimant
the addition of a restriction by the claimant to his indorsement of the check, such as “under protest,” does not operate to preserve his right to seek additional compensation
accord and satisfaction - use of a negotiable instrument: claimant is organization
when the claimant is an organization, the discharge is not effective if the instrument is not tendered to a person, place, or office designated by the organization
accord and satisfaction - use of a negotiable instrument: no designation is made or claimant is not an organization
if no such designation is made, or the claimant is not an organization, the discharge is not effective if the claimant returns the payment within 90 days
accord and satisfaction - use of a negotiable instrument: regardless of the type of claimant, the claim is discharged when…
regardless of the type of claimant, the claim is discharged when the claimant, or the claimant’s agent who has direct responsibility with respect to the dispute obligation, knew, within a reasonable time before the collection was initiated, that the instrument was tendered in full satisfaction
accord and satisfaction - use of a negotiable instrument: discharge of claim burden of proof
the burden to establish such knowledge is on party seeking discharge
illusory promises
an illusory promise is one that essentially pledges nothing because it is vague or because the promisor can choose whether to honor it—such a promise is not legally binding
is an illusory promise legally binding?
no
is a promise based on the occurrence of a condition within the control of the promisor considered illusory?
a promise that is based on the occurrence of a condition within the control of the promisor may be illusory, but courts often find that the promisor has also promised to use her best efforts to bring about the condition
is a promise to purchase goods upon the promisor’s satisfaction with the goods illusory?
a promise to purchase goods upon the promisor’s satisfaction with the goods is not illusory because the promisor is required to act in good faith
can a voidable and unenforceable promise constitute consideration?
a promise that is voidable or unenforceable by a rule of law (i.e., infancy) can nevertheless constitute consideration
requirements contract
a requirements contract is a contract under which a buyer agrees to buy all that he will required of a product from the other party
output contract
an output contract is a contract under which a seller agrees to sell all that she manufactures of a product to the buyer
why is there consideration in requirements and output contracts?
there is consideration in these agreements because the promisor suffers a legal detriment
does the fact that a party may go out of business as a result of a requirements/output contracts render the agreement made an illusory promise?
the fact that a party may go out of business does not render the promise illusory
requirements and output contracts - good faith and fair dealings regarding quantity
a covenant of good faith and fair dealing is implied in all contracts (common law and UCC), any quantities under such a contract may not be unreasonably disproportionate to any stated estimates, or if no estimated is stated, to any normal or otherwise comparable prior requirements or output
settlement of a legal claim
a promise not to assert or a release of a claim or defense that proves to be invalid does not constitute consideration, unless the claim or defense is in fact doubtful due to uncertainty of facts or law, or the party promising not to assert or releasing the claim or defense believes in good faith that it may be fairly determined to be valid
